Tuesday, May 15, 2012

Dataram Revisited...

The very first post that I ever made on this blog was about a company called Dataram that was at the time, trading for a discount to it's liquidation value.

Later, I decided to send them a letter, asking them to repurchase stock at levels where the company was trading for less than it's net cash. In their response, they basically thumbed their noses at me by saying "thank you... for sharing your insight to the market, business and Dataram."

Since then, it has become apparent that the company has totally failed to implement their plan involving "The use cash and the creation of more cash..." On the day that I sent my original letter, the company had roughly $16 million dollars in cash and virtually no liabilities. Over the course, their tangible book value has shrunk to being measured in the single digits of millions of dollars... and that is AFTER they issued over $3 million in stock and sold off some patents!

Later, the company came in danger of being delisted this, share price suppression being symptomatic of just how terrible the decisions are that the company has made.

Now, the company has taken on debt that it never needed to, has little in the way cash, has desperately sold off patents to raise cash, and now, is buying back up to 1 million shares of stock at uninteresting prices. I assume that this is in an attempt to keep it's listing... The problem, is that the company is doing this repurchase at a time when the business seems to be trading at a price that isn't really very compelling compared to it's intrinsic value. From the article linked to, here is a snippet:

Marc Palker, Dataram CFO said, “The Board of Directors recognizes the stock is undervalued and this buyback is one of several alternatives that executive management is continuing to pursue to increase shareholder value”.

When I suggested it should repurchase shares, it was trading for far less than it's liquidation value, and thus, would have gotten a much better deal by buying back it's stock at that time. DRAM is first class example of a company that has decided to repurchase shares at exactly the wrong time after passing up a perfect time to do so. Frankly, I have little faith in the company.

I was able to avoid some of the run up in price, the impending collapse, then slight recovery by selling off my shares; after all, it was apparent that the company was hell bent on destroying shareholder value through troublesome acquisitions. I learned a lot through the process too... There is an importance when looking at net-nets; I would argue that you need to figure out what management is going to do with the assets of the company. It doesn't take much work at all and can make any basket of stocks a lot safer. John, over at Shadow Stock is a person who does a great job of creating a net-net basket, that throws out a lot of the crap that is out there.

Disclosure/Disclaimer: I have no position in regards to DRAM. I reserve the right to change any of my positions at any time. This is not advice of any kind and is solely my own opinion. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

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